Cuba Grapples With Debt

The Cuban government has negotiated an agreement with the Paris Club, an informal body representing a collection of relatively rich creditor nations, regarding a significant portion of Cuba’s foreign debt. Specifically, Havana consented to pay Paris Club lenders $15 billion to cover longstanding obligations originating from a largely unaddressed Cuban financial default in 1986. The figure encompasses the principle amount due as well as subsequently accumulated service charges, interest and penalties.

“The final amount of $15 billion has been approved by both parties, so that is a big first step and now the creditors will meet to set policy for formal talks,” an anonymous diplomat involved with the negotiations told the press.

With the $15 billion bill established, Cuba and the Paris Club can now move on to the next phase of negotiations -restructuring the country’s payment plan. Sources with intimate knowledge of talks were confident that the lender nations, eager to settle Cuba’s external debt situation and clear the way for foreign investment in the Caribbean nation, would be open-minded and agree to accommodating payment terms with Havana.

“Everyone wants to put this behind them now and move forward, and frankly, after 30 years I think the banks will be happy just to get something back,” another diplomatic insider explained.

While the Cuban government remains unwilling to publicly comment on its debt negotiations, it nonetheless appears genuinely considered with covering Cuba’s foreign obligations. Current Cuban President Raul Castro, a veteran of the 1959 Revolution and the brother of Cuba’s former leader Fidel Castro, has repeatedly voiced his intention to get Cuba’s fiscal house in order and pay down Cuba’s debt since assuming power in 2008.

In an effort to reform Cuba’s finances, and thus please the country’s international creditors and attract new foreign investment, Castro has reduced his government’s expenditures by cutting state payrolls and subsides. His related effort to limit the amount of imports arriving in Cuba has substantially improving the island’s previously imbalanced trade situation.

Thanks in large measure to Raul Castro’s policies, Havana has been able to reach amenable debt payment terms with several of its foreign creditors -including Japan, Russia, Mexico and China- in the past four years. In many instances, creditors forgave anywhere between 70 to 90 percent of what Cuba owed to them. There’s reason to believe that Cuba will be able to secure a similarly favorable payment plan with the Paris Club in the near future.

Positive developments aside, the Economist Intelligence Unit, a private financial analysis organization, estimates that Cuba’s foreign debt currently stands at around $26 billion -a considerable sum for a small underdeveloped nation. As Cuba gains access to much-needed new sources of financing and investment abroad in the coming years, owing to its rapidly improving relations with its formerly hostile neighbor the United States, it’s government will come under increasing pressure to substantively address these obligations. Recent actions by the Castro regime display a definite willingness to do so.

The nation’s that make up the Paris Club include Australia, Austria, Belgium, Britain, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, Norway, Russian Federation, Spain, Sweden, Switzerland and the United States. The unofficial consortium maintains a special working group on Cuba.